IMF extends credit line to Peru
May 29, 2020 |
Peru gets $11 billion to buttress confidence during the coronavirus pandemic
The International Monetary Fund (IMF) approved late Thursday a two-year, $11 billion flexible credit line for Peru to fight the effects of COVID-19.
The two-year credit line equals 8.007 billion special drawing rights (SDRs), or 600% of Peru’s quota. Peru requested the line on May 8.
The IMF praised Peru’s "strong fundamentals," which include prudent fiscal management, low inflation, effective financial sector supervision and a "robust" 5.25% average yearly growth over the last 15 years, but it also underlined challenges in the context of the pandemic.
"Despite its very strong policy buffers, Peru remains vulnerable to external tail risks," Kristalina Georgieva, managing director and chair of the IMF executive board, said in a press release. "The new 24-month FCL arrangement would serve as an appropriate temporary insurance to buttress confidence in the context of heightened global uncertainties."
The Peruvian economy is expected to contract 8% in 2020 according to a May 19 Goldman Sachs forecast, down from a 2.5% contraction forecast released on March 27. Nonetheless, S&P Global affirmed Peru’s BBB+/A-2 foreign currency ratings with a stable outlook on May 4.
Peru’s stimulus program, worth 12% of gross domestic product, is one of the strongest packages in the region, the country’s head of the treasury department at the ministry of economy and finance, José Olivares, told LatinFinance in an interview last month.
The package includes "measures aimed at containing the health emergency, supporting vulnerable businesses and households, and maintaining adequate credit flows to the economy," the IMF said.
The government raised $3 billion through a two-part deal in mid-April, with $1 billion in five-year notes and $2 billion in 10-year notes. In the wake of this issuance, the country had accumulated a $13 billion liquidity mass, equivalent to 6% of GDP, to combat the coronavirus.
The Peruvian authorities intend to treat the arrangement as precautionary and will consider exiting the arrangement once the "exceptional set of external risks have subsided," the IMF said.